Will Neil Woodford Buy Standard Chartered PLC?

Let’s begin with a quick trip down Memory Lane to put Standard Chartered (LSE: STAN) (NASDAQOTH: SCBFF.US) into context.

The table below shows the FTSE banks at 11 September 2007, before the financial crisis hit.

FTSE rank Bank Market cap (£bn)
3 HSBC Holdings 102.2
6 Royal Bank of Scotland 52.5
7 Barclays 39.7
14 HBOS 33.7
15 Lloyds TSB 30.0
20 Standard Chartered 21.0
71 Alliance & Leicester 4.2
97 Northern Rock 2.8
122 Bradford & Bingley 2.2

Source: UK StockChallenge

Eighteen months later: Northern Rock and Bradford & Bingley had been nationalised, wiping out shareholders; Alliance & Leicester had been sold for a song to Santander; Royal Bank of Scotland and Lloyds (strong-armed into taking on bankrupt HBOS) only survived by a mega-billions bailout from the taxpayer, and Barclays narrowly avoided the same fate.

HSBC proved more resilient, but saw its market value more than halved from £102bn to £48bn. Standard Chartered was the only bank to come through the period with any real credit. The company continued to grow its revenue, earnings and dividend; and moved up from being the FTSE’s number six bank at 11 September 2007 to number two at 20 March 2009.

Woodford’s recent words

A few months ago, ace City investor Neil Woodford, who famously got out of banks before the financial crisis, flatly denied claims by the Daily Mail that he was eyeing up an investment in Lloyds Banking.

However, Woodford went on to say: “Some banks have made better progress in clearing up their balance sheets, however, having not participated as fully in the excesses that led to the financial crisis”.

Woodford gave an example of what, in his opinion, was an investable bank. It wasn’t Standard Chartered, that ship that had sailed most steadily through the financial storm, but HSBC.

Nevertheless, Woodford was cautious about HSBC’s exposure to Asia, due to “the risks associated with the slowdown in activity that is now evident in that region, China in particular”.

While a sizeable part of HSBC’s business is in Asia, Standard Chartered’s reliance on the region is massive. Indeed, it was the good fortune of minimal exposure to the US, UK and Europe that served Standard Chartered so well during the financial crisis.

As things stand, with Woodford’s current concerns about Asia, it looks to me like HSBC is at least closer to his idea of ‘investability’ than Standard Chartered.

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> G A Chester does not own any shares mentioned in this article. The Motley Fool owns shares in Standard Chartered.